The Catastrophic Addiction Central Banks Have To Print Enormous Amounts of Money
Why it’s going to be so hard to embrace abundance.
Why don’t we pay money to use the air we breathe?
If air is the most valuable thing on earth, why don’t you pay for it? Because it’s abundant.
We’re living in an era of abundance creation because of technology disruption. Meaning, innovation is taking prices cheaper, almost free.
Innovation is also taking our jobs, so we need fewer jobs because robots are doing it more efficiently and costly.
Abundance is taking place. However, for the abundant system to emerge, the old system will have to collapse.
What will be the consequences, and what is happening now that we can’t clearly see this massively colossal shift from the old system to the new system?
He who is quick to borrow is slow to pay.
Accordingly to one of the most respectful hedge fund managers, Ray Dalio, there are only four ways governments can escape debt crisis:
- Austerity- spending less
- Debt defaults/restructuring
- The central bank printing money or other guarantees
- Transfers of money from those who have more than they need to those who have less (much higher taxes for the rich)
Whether starting with austerity or restructuring, both would create a vicious cycle of asset prices collapse, combined with lower employment. It is the most painful government tool to the society in the short term. That’s probably why this kind of dialogue is not shared in the public sphere.
The only conclusion we can make on money printing and lowering interest rate policies is that it keeps the party going by driving more debt.
From a macroeconomic perspective, driving more debt only pushes the pain in the longer term.
In the shorter term, it only makes successful people feel reacher.
You can see it by what happened in the Great Recession of 2008. Governments took place, bought the problems with printing money, the reaches kept their parties on, and the world moved on.
All of this happened with half a dozen people arrested, with most of the leading players being surgically placed in different positions, but the group of friends remained the same for the party to continue.
It’s like you have a group of people rearranging the Titanic chairs while the boat keeps sinking.
The Federal Reserve is printing 120 billion dollars per month to keep the boat afloat. One day will come, probably sooner than we think, when our heads are underwater, and we can’t hear the music playing anymore.
Once bondholders determine that governments have little ability to repay or service the debt, the risk premium (or interest rates) on the debt will rise. Sure, governments can monetize and make their currencies worthless, but as other central banks monetize as well, the strategy itself becomes irrelevant. Jeff Booth in The Price of Tomorrow
This mischievous game has only one endgame: higher inequality, people losing hope in the system, more polarization, the rise of radical leaders, and lastly, revolutions or war.
The problem with socialism is that you eventually run out of other peoples’ money.
Socialism goes by the principle that the system should be fair to the disadvantage. However, if we increase the tax rates on the wealthy, the more disincentives they have to produce innovation and jobs and be strong contributors to society.
With more jobs being destroyed by innovation and money being printed out of thin air, recent Universal Basic Income (UBI) proposals are beginning to take shape.
The idea is simple: tax the rich to support people who have no jobs. In theory, this sounds reasonable, even for the most fervent capitalists. Why? Because in a world with zero consumption, capitalism also dies.
Yet, if you turn an economy to fewer and fewer participants, the math doesn’t work anyway, and the system will also collapse.
UBI is pernicious in its essence. It discourages innovation and wealth creation, showing that people do not need to work because someone will do it for them. Then, we also have the problem of the ‘fair’ value been given to each citizen, in each country, each city, or state.
Ultimately, the Universal Basic Income would not solve the root cause.
Deflation is not being caused by bad people from central banks or governments. I believe they are trying to do their best to keep things going.
Deflation is being caused by technology disruption.
This means the tsunami caused by deflationary innovation will keep pressure on global economies. The abundance that technology provides to the humanity does not need more jobs. On the contrary, it replaces employment with more efficient and cheaper solutions.
This negative effect on jobs will only accelerate over the next few decades.
Ignoring this simple concept will only make the world more divided, less globalized, unequal, and permissive to populism, divisionism, and conflict.
To survive, our economy must work with nature, not against it — time to reset.
All governments are trying to print into this problem because the system requires it.
If you would allow the free market to take place, you’d have a deflationary spiral. Yet, the debt is so large, and everybody owns debt- governments, corporations, companies, and individuals- with absolutely nothing backing it. It’s only counter-party risks all the way down.
Meaning, if you allow the debt spiral to take place, everything on top of debt will fail, including governments, banks, institutions, hospitals, everything.
Why does it look that bad? It looks horrible because it breaks the natural rules of the free market. Mother nature comes in cycles. You can’t stop winter from going after fall. So, trying to stop recessions hoping you can grow forever is insane. That’s not how the free market works.
From a government’s perspective, they have 4 years cycles, and it’s more convenient for politicians to find easy and short-term ways to make the population feel wealthy. And because of that, they try to control inflation at all costs.
The problem is not from the right or the left, the republicans or democrats; it’s about the system and the debt cycles. That’s their natural order, and trying to fight against it, is simply suicide.
The more you fight nature, free market, and technology, the more you increase the bubbles and pass to future generations a bigger problem. Politicians know that, but they cannot fight it because they genuinely want to be elected.
So, we start to see signs of very experiment politics suggesting a reset:
The Great Reset agenda would have three main components. The first would steer the market toward fairer outcomes. To this end, governments should improve coordination (for example, in tax, regulatory, and fiscal policy), upgrade trade arrangements, and create the conditions for a “stakeholder economy.” At a time of diminishing tax bases and soaring public debt, governments have a powerful incentive to pursue such action.- Klaus Schwab, founder and Executive Chairman of World Economic Forum.
Abundance is not something we acquire. It is something we tune into.
The simple solution is far from simple.
Occam’s razor philosophy says that a simple solution is more likely to be correct than a complex one.
In this particular case that we live in, it seems the complex solution is only postponing the painful decision to embrace abundance.
It’s almost like having a cut on the finger and wanting to remove the dressing, but we are postponing the moment just to postpone those few seconds of pain.
The problematic and straightforward question is: what if the natural order of things was permitted? What if, instead of trying to fight deflation at all costs, we embrace it?
If everything- not just phones or Internet companies but EVERYTHING- is giving far more performance and at the same time falling in price, a family that makes $75,000 this year and struggles to make ends meet could make $70,000 next year and the dollars would go further. And then $60,000 a few years after that and it would go further still, continuing to gain more for less with the natural deflationary trend in technology. That would allow us to step off the existing treadmill of chasing higher and higher prices, requiring even higher-paying jobs to keep up.
That may sound radical, but if technology is deflationary, and we expect technology to continue its advance into more and more industries, it may not be radical at all. It may be the only sane thing to do.- Jeff Booth in The Price of Tomorrow
Final Thoughts
Governments all over the world are in a genuine rat race. They keep printing money to control inflation and employment, but they can’t fight technology innovation.
The only rational solution is the hardest one, embracing the natural order of things and letting deflation take its place.
However, no politician will be able to embrace deflation because it would mean losing power. So, we’re facing an endless road.
A great reset is already taking place, but a new agreement like Bretton Wood 2.0 is required. And the borrowers are the ones who are going to be wiped out.
Debts can’t and will not be paid because countries can’t provide sufficient growth to pay them. It’s simple math.
And central banks can’t monetize everything eternally. But governments will not voluntarily give up control of their currencies. So, it has to happen a coordinated international effort to establish new rules around money.
Currencies only hold value because of the trust we have in them.
Trust is increasing in the Bitcoin network, as it spread all over the world, as a possible finite asset collateralizing a new entire financial sector.
If governments do not keep their promises, the more trust eroded, the more likely alternative currencies become more trusted.
It’s clear that something has to be done, but the complex system we live in is not seeing what is happening. And what is happening is that a new system is taking place, with code and cryptography as the trust entity, not humans.
Technology disruption is taking place in the financial industry. But most politicians keep thinking that their complicity with central banks, commercial banks, and powerful institutions gives them a bulletproof vest.
If you know history, you have endless examples of the quick fashion way technology disruptions take place. Just remember what the combustion engine did to city landscapes or what the electricity did to our modern way of living.
Somehow, somewhere, silently, technology disruptions always win.
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.
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